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Lecture 6
Economic Development: Case of China
-
Kenny Zhang
 Why is development important? (Table 1)
 How does a country develop?
o Is China a developing country? And why?
 Measure, diversity & common
characteristics
o Has China been developing? And how did
China achieve development?
 Development models (theories)
o Will China maintain its development? And
how?
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Country at a glance
Capital:
Area:
Population:
Population growth rate:
GNP per capita:
GNP per capita (PPP):
Beijing
9,600,000 km2 (3rd largest)
1.3 billion (2000) (1st place)
0.9 % (1999-2000) (1.5%)
US$860 (1997)
US$4,382 (1997)
GNP per capital growth rate:
6.7% (1996-97)
GDP per capital growth rate:
9.5% (1990-1999)
Agriculture as share of GDP:
15.9% (2000)
Exports as share of GDP:
24.5% (2000)
Infant mortality rate:
Child malnutrition (underweight):
Unemployment rate:
Females as share of labor force:
Illiteracy rate (age 15+):
Poverty (population below national line):
Population below $1/day (PPP US$)
Human Development Index:
30‰ (2000)
9% (1994-2000)
3.1% (urban-1999)
45% (1997)
Male 10%, Female 27% (1996)
5% (2000)
18.5% (1993)
0.718 (rank 87) (1999)
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1. Why is China a developing country?
a. Common Characteristics of Developing Nations (P.43-62)
i. Low levels of living: (China; less developed; developed)
 Low incomes (1999)
GNI PPP per capita: $3,550; $3,210; $20,520
GDP PPP per capita: $3,617; $3,530; $22,020
 Inequality (1999)
Gini: 40.3; 37.8 (India); 31.5 (Canada); 40.8 (USA)
Income share (Rich 10%): 30.4; 33.5 (India); 23.8
(Canada); 30.5(USA)
Income share (poor 10%): 2.4; 3.5 (I); 2.8 (C); 1.8 (U)
 Poor health (1999)
Physicians (per 100,000 people): 162; 48 (I); 226 (C);
279 (U)
Access to essential drugs (%): 85; 35 (I); 100 (C); 99
(U)
Adequate sanitation facilities (%): 38; 31 (I); 100 (C);
100 (U)
 Inadequate education (1999)
Adult literacy rate (%): 83.5; 56.5 (I); 64-99
(Developed)
ii. Low levels of productivity
 GDP productivity: $1,317; 948 (low); 5,5916
(high); 39,681 (C)
 Agriculture productivity: $316; 346 (low income);
34,922 (C)
iii. High rates of population growth and dependency burdens
 Population annual growth rate (%): 1.3; 2.0 (I); 1.1
(C); 1.0 (U)
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 Population under age 15 (%): 25.3; 33.9 (I); 19.4
(C); 21.9 (U)
 Population aged 65 and above (%): 6.7; 4.9 (I);
12.5 (C); 12.3 (U)
 Total dependency: 32; 38.8 (I); 41.9 (C); 34.2 (U)
iv. High and rising levels of unemployment and
underemployment
 Unemployment rate: 3.1; 7.6 (C); 4.2 (U)
 Un(der)employment in rural sector: high
v. Substantial dependence on agricultural production and
primary-product exports
 Agriculture as % of GDP: 18; 26 (low); 2 (C-1990)
 Primary exports (%): 12; 22 (I); 27 (C); 13 (U)
vi. Prevalence of imperfect markets and limited information
 Imperfect market: changing
 Incomplete information:
vii. Dominance, dependence, and vulnerability in
international relations
 WTO
 FDI (42 billion)
 Brain Drain
b. Conclusion: Some apply to China, and others don’t. Therefore,
China is a developing country that has many differences from
other developing countries
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2. How did China achieve development?
a. Development periods (post-1949)
i. 3 year recovery (1949-1952):
Consolidation of power, restoration of public order,
and elimination of widespread unemployment and
starvation
ii. Socialist planned economy:
 1st Five-Year Plan (1953-1957): A new economic
order modeled on the Soviet example, emphasizing
the development of capital-intensive industry
 Great Leap Forward (1958-1960): The break away
from the Soviet model and introduction of a new
program aimed at rapidly raising industrial and
agricultural production
 Cultural Revolution (1966-1976): The pursuit of
Mao’s own development strategy of a self-reliant
economy and political struggle whereby Mao was
pitted against Liu and Deng. (inject ideology into
economic planning, disrupt foreign trade, and shut
down educational and training facilities)
iii. Socialist market economy:
 Economic Reform (1978- ): To move the economy
from a sluggish planned economy to one that is
more market-oriented (raise personal income and
consumption; introduce new productivity,
incentive, and management system).
a. Rural reform: (long-term leases on land, and
permission for farmers to specialize in cash
crops and to engage in nonagricultural
activities)
b. Open-door policy: (Turnaround from an
inward-looking, self-reliant economy to one
that actively participated the world economy,
SEZs)
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c. Industrial reform: (self-management rights,
introduction of greater competition in the
marketplace, i.e. price mechanism, ease tax
burden on nongovernmental enterprises)
d. Financial reform (Companies made
responsible for their own financial
performance; had to borrow money from
banks or raise capital at the stock market)
e. SOEs reform (downsizing SOEs, bankruptcy
law, etc.)
b. Outcomes of development: Comparison of Two Development
Models (Diagram 1)
c. Conclusions:
i. Socialist planned economy: Linear-stages growth
 Traditional society
 Pre-condition for take off into self-sustaining
 Take-off
 Drive to maturity
 Age of high mass consumption
 Investment -> saving: GDP = S + C
 Failure
ii. Socialist market economy: Neoclassical market-friendly
approach
 Government intervention at macro level
 Magic of marketplace at micro level
 Great success
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3. How will China maintain its development?
a. New Challenges:
i. Employment insecurity
ii. Growing inequality
iii. Stubborn poverty
iv. Mounting environmental pressures
v. Rising costs of food self-sufficiency
vi. Macroeconomic instability stemming from incomplete
reform
vii. WTO and structure change
b. Strengths: (Endogenous growth)
i. Relative stability – pre-condition
ii. High savings rate – investment
iii. Strong record of pragmatic reforms – free-market
iv. Disciplined and literate labor force – human capital
v. Supportive Chinese Diaspora – FDI & Technology
vi. Growing administrative capacity – efficiency in
government intervention
c. Conclusion: China can meet these challenges and sustain rapid
growth.
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Population and Urbanization in China
140000
35
% of Urban
30
100000
25
Population
120000
19
97
19
95
0
19
93
0
19
91
5
19
89
20000
19
87
10
19
85
40000
19
78
15
19
70
60000
19
62
20
19
52
80000
Persentage of Urban Population
Population (year-end) (10 000 persons)
Urban Unemployment Rate
6
5
4
3
2
1
0
1978
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
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Diagram 1: Comparison of Two Development Models
China (1978-1998)
China (1952-1977)
45
GDP (USD million)
40000
1200000
900
40
DPG per capita (USD)
GDP (USD million)
1000000
30000
30
25000
25
GDP
20000
20
15000
15
10000
10
5000
5
0
0
DPG per capita (USD)
700
800000
GDP
35
GDP per capita
35000
800
600
500
600000
400
400000
300
GDP per capita
45000
200
100
1998
1996
1994
1992
1990
1988
1986
1984
1982
0
1980
0
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
1958
1956
1954
1952
200000
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Table 1: Long-run of Economic Growth - Selected Countries
Country
Period
Japan
Brazil
Canada
W Germany
United States
China
Mexico
UK
Argentina
Indonesia
Pakistan
India
Bangladesh
1890-1990
1900-1987
1870-1990
1870-1990
1870-1990
1900-1987
1900-1987
1870-1990
1900-1987
1900-1987
1900-1987
1900-1987
1900-1987
Real GDP per Person Real GDP per
Person at End of
at Beginning of
a
Perioda
Period
$1 149
595
1 815
1 669
3 063
547
886
3 676
1 753
681
564
516
476
$22 036
4 664
23 301
19 503
24 922
2 386
3 640
18 549
4 507
1 638
1 208
904
512
Growth Rate
(Per Year)
3.00%
2.39
2.15
2.07
1.76
1.71
1.64
1.36
1.09
1.01
0.88
0.65
0.08
a
Real GDP is measured in 1985 Canadian dollars.
Source: Mankiw, N. Gregory, et. al., Principles of Marcroeconomics, First Canadian Edition, Dryden, Harcourt
Brace & Company, Canada, p. 237.
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